Theory Meets Practice

Prof. Dr. Stefan Bratzel from the Center of Automotive at the University of Applied Sciences for Industry (FHDW) in Bergisch Gladbach discusses current trends in the automotive industry with Dr. Stefan Wolf, CEO of ElringKlinger AG

DR. STEFAN WOLF: Prof. Bratzel, one of the biggest crises the automotive industry has ever faced is now behind us. The markets have recovered much more quickly than expected. In your opinion, what has changed?

PROF. DR. STEFAN BRATZEL: Yes, it was surprising that car manufacturing in the US recovered so rapidly. And growth in China has been phenomenal. There are enormous changes ahead, and not just because of the industry crisis. We are currently witnessing a paradigm shift. At the same time, the international landscape is changing and new players are emerging, particularly in Asia.

DR. STEFAN WOLF: Yes, people in Asia want to be mobile too. Along with South America, Asia has performed the most strongly. Even if China cannot fully maintain its rapid growth rate, it is nonetheless the world’s biggest growth market. One factor is that the car is popular as a status symbol in this region.

PROF. DR. STEFAN BRATZEL: Our most recent studies show that in Germany the car’s role as a status symbol will diminish in future. In Asia that is not the case, which will boost demand in the premium segment. But because of regulatory limitations, the high level of vehicle density reached in Germany will never be possible in China. So although growth in China should continue to be slow, this market still offers excellent potential. We need new concepts. We can safely assume that a car sold in China in 20 years’ time will look very different from those sold today.

DR. STEFAN WOLF: And how do you think the automotive supply industry will develop? We expect some incredible innovations in the field of drive technology. A high level of investment will be required.

PROF. DR. STEFAN BRATZEL: During the industry crisis, the strong players became stronger. Although the trend towards consolidation is set to continue in the supply industry, it will be a more subtle process. Automotive suppliers that became victims of the crisis remained in the market because they were given some form of support by the manufacturers.

DR. STEFAN WOLF: I am convinced that in the next few years we will see another wave of consolidation sweeping through the market. Financially strong and innovative companies that continued to invest during the crisis will win the day. By way of example, we recently purchased the Static Metal Gaskets division from the Freudenberg Group, thereby strengthening our position in the gaskets market. And we have identified further opportunities. Many smaller and midsized suppliers are not geared up for international business, or are forced to consider the issue of succession. In both cases, these companies will come up against problems.

PROF. DR. STEFAN BRATZEL: On the other hand, new players from regions such as China and India will provide additional competition, potentially increasing their share of value-added through acquisitions and thereby contributing to the consolidation process. I also think that partnerships will become increasingly important in the current climate.

DR. STEFAN WOLF: What do you expect to see from a technological perspective? Is the combustion engine’s monopoly coming to an end?

PROF. DR. STEFAN BRATZEL: In 2025, 75% of us will still be driving cars with diesel or petrol engines. And we shouldn’t forget that it’s going to take a while before companies can make any money from the new drive technologies. But electric vehicles will definitely have their place.

DR. STEFAN WOLF: Yes, our industry is very strongly cost-driven. And the potential of the combustion engine has by no means been exhausted. At the same time, we are seeing a clear trend among many of our customers towards the hybrid vehicle as a model for transition. It solves the problem of limited cruising range that arises for pure electric vehicles. We see the role of plug-in hybrids, which can be charged from a standard household wall socket, growing in importance. Because the additional costs associated with this vehicle are still high, the concept will inevitably only be offered in the high-end vehicle segments, to begin with. Certainly, the hybrid will become more of a life-style product.

PROF. DR. STEFAN BRATZEL: I agree. But there is definitely still potential to increase the efficiency of the combustion engine by 20% in the coming years. Downsizing is the order of the day. Carmakers are desperately looking for solutions to help them reduce consumption.

DR. STEFAN WOLF: This is where ElringKlinger will make a key contribution. The combustion engine will still dominate the market for the next 15 to 20 years. Nevertheless, as a forward-thinking company, we need to ready ourselves now for the long-term development of electric vehicles and make targeted investments in this new opportunity.

PROF. DR. STEFAN BRATZEL: The electric vehicle is set to change the entire value creation system in the automotive industry considerably. And this is where we find out just how technology-friendly our society is. That’s why it’s so important for us in Germany to start driving electric vehicles – not wait for other countries to do it first. New business models are emerging – in the area of battery infrastructure, for instance. Other areas, such as the networked vehicle, are quickly gaining in importance, as are new infrastructures and business models for alternative drive technologies.

DR. STEFAN WOLF: Early on, we began to examine how we could use our process expertise for new products related to the electrification of the motor vehicle. As a company, you need to be on board from the start to move up the learning curve with everybody else. This is the only way you can then set up the right kind of production system. We have managed to gain a foothold in the electric vehicle market through the production of battery components. We are currently setting up series production for our new cell contact systems for the lithium-ion batteries used in hybrid and pure electric vehicles.

PROF. DR. STEFAN BRATZEL: It is crucial to establish these new key areas of activity early on. And suppliers that are prepared to tread this path alongside manufacturers are in strong demand. Only recently, a well-known management consulting company recommended that manufacturers leave the production of battery cells and connectors to specialist suppliers and concentrate on assembly instead. Original equipment manufacturers prefer to work with suppliers that can reduce complexity for them. On the other hand, they don’t really want to increase the number of suppliers they use either.

DR. STEFAN WOLF: I think we are in a good position in this respect. Our traditional products make a key contribution to improving the combustion engine. But we can also supply cell connectors and module connectors for batteries.

PROF. DR. STEFAN BRATZEL: It’s definitely a good thing if suppliers can position themselves so that they can operate comfortably in both worlds. Although in Germany we have started one or two years later, “e-mobility” is clearly not a sprint – it’s an endurance race.

DR. STEFAN WOLF: What are the future prospects of fuel cells? Some manufacturers have significantly stepped up their activities in this area again recently.

PROF. DR. STEFAN BRATZEL: The trouble is that the price of fuel cell stacks means that they won’t be saleable for a long time yet. Then there is the odd technical problem to consider. I wouldn’t expect large-volume sales within the next ten years, because the infrastructure problems remain completely unresolved as well. Mind you, I must say that fuel cell vehicles drive well and do not have the cruising range problem associated with battery-powered vehicles.

DR. STEFAN WOLF: I think the race to find which drive technology will succeed in the long-term is still open. PROF. DR. STEFAN BRATZEL: Absolutely. It is still not clear how we will be driving in 30 years’ time. It is important not to concentrate on just one technology. Suppliers can’t risk falling behind in their development of new drive technology applications or giving them low priority.

DR. STEFAN WOLF: What is the outlook for 2011? We have almost reached pre-crisis levels. From here on, we expect growth rates to return to normal. In future, we think growth in the industry will be concentrated on the emerging nations. In China, car sales will continue to rise, but not at the galloping rate of the last two years. While Europe’s growth should remain at the same level as last year, we expect it to be moderate in the USA.

PROF. DR. STEFAN BRATZEL: My predictions would be similar. China’s growth will definitely flatten out compared to previous performance but it will remain the most important single market in the world. South America and Russia will also see positive growth. Overall, an increase in global vehicle production of three percent should be feasible in 2011.

DR. STEFAN WOLF: Demand for cars is also rapidly increasing in the densely populated ASEAN countries such as Thailand, Malaysia, Indonesia and Vietnam, where the national economies are growing. With incomes on the rise, more and more people can afford to buy a car.

PROF. DR. STEFAN BRATZEL: Yes, but suppliers still need to develop structural growth. Key focus areas are still the energy efficiency of the engine and lightweight construction. Suppliers that can help to solve these kinds of problems for the automotive industry are in a very good position.

DR. STEFAN WOLF: That’s why we are focusing on technology issues such as downsizing, turbocharging and reduced-weight plastic housing modules, as well as identifying additional components with which we can consolidate our portfolio for hybrids and pure electric vehicles. We are not just relying on market growth. Every year, ElringKlinger launches new products on the market. In this way, we expect organic growth of 5-7% a year in the long term. Prof. Bratzel, it’s clear that theory and practice are not as divorced from each other as might be expected. I thank you for joining me to discuss these topics and look forward to our next exchange.